Fulfillment systems for retail and e-commerce

Fulfillment systems for retail and e-commerce

Not long ago, the CEO of a company included in the top 20 worldwide material handling system suppliers, according to MMH, told me that no fulfillment system that delivered less than 500 SKU’s per hour was adapt for e-commerce.

I don’t think that affirmation is always right. There is not a “fit it all” solution for e-commerce, mostly, when we are observing significant signals of transformation both in e-commerce and retail. To name a few:

 

– Amazon, Carrefour, Kruger, and others are launching pilot programs for delivery in 30 minutes. That means that the fulfillment system should have prepared the parcel for delivery just a few minutes after the order has been received and placed very close to the customer.

– The delivery cost of the last mile is the most expensive part of the freight. According to Statista, the average last-mile delivery cost worldwide in 2018 was $10.1, with customers willing to pay $1.4 on average.

Amazon’s logistics costs in 2019 soared to 27.9% of net sales, almost double of 15.6% of 2009. Free deliveries, always faster, are eroding the profitability of the internet giant. Initiatives as the lockers, launched in 2011, or stepping in “brick and mortar” retail, with the purchase of Whole Foods or their brand stores, are trying to reduce the last mile cost while improving the customer experience. In the same line goes the initiative of partnership with retailer Kohl’s for managing devolutions.

– Customers don’t always want to have their orders delivered home. Increase of packaging-stealing thieves or the impossibility of receiving the parcels while not at home are changing the expectative of many customers. BOPIS (Buy-Online, Pickup-In-Store) increased 39% from 2018 to 2019 according to Adobe.

 

The solution of a distribution center, having a footprint between 200,000 and 500,000 sq. Ft. that covers a large area and processes a high volume of orders to be delivered at the customer’s home, many times the next day or in 48 hours, is still a solution. It is not the only solution. The “fit it all” fulfillment center is over.

 

As Marc Wulfraat wrote about the grocery sector in the Dematic’s blog, there is a need for new solutions for retail and e-commerce businesses for being capable of fulfilling online click-to-collect or on-demand delivery services. He points to different ways that the grocery sector is acting in this growth of the online business:

 

  • In-store fulfillment: It’s how some retailers had started. An employee picks the items of the order as a typical shopper would do. Companies don’t need to make capital investments. But as the number of orders grows, there is an evident interference with the offline shoppers.
  • Dark store: They are small warehouses placed in areas where there is not the need for a more sophisticated solution. They have aisles as a traditional store or a cash&carry, but they are closed to the shoppers and prepare orders for online customers with next day delivery. They don’t look very appealing to the community if installed inside the cities.
  • Micro-Fulfillment Center: This solution recently appeared in the market. This system placed in the store’s warehouse with footprints going between 8,000 and 30,000 sq. Ft. It’s an automated fulfillment system that allows the store to fulfill the online orders in a short time, both for pick-in-store and home delivery without interfering with the shoppers in the store. With a reduced footprint, storage density is significant for having all SKU’s needed. As they serve a local area, there is no need for very high throughput in lines per hour. Time to order ready instead is crucial for the existing tendencies in the market, like click and collect, curbside picking, or 30 minutes delivery.
  • Customer Fulfillment Center: It serves a larger area processing a high volume of orders. Footprints from 200,000 to 500,000 sq. ft. are common and may have highly automated systems. The typical Amazon’s distribution center is a perfect example, and this is the kind of fulfillment system that the CEO at the beginning of this post meant.

 

All these systems have their potential applications, and no one will prevail over the others. This is true for groceries, as for many other sectors of retail and e-commerce. Anyhow, the micro-fulfillment system is one that may have a steep rise as it helps retailers to solve many of the online problems, like last-mile delivery costs and BOPIS. For sure, this may mean an increase in the total inventory, but the freight costs and customer experience may be worth it. Wulfraat estimates that the market for these systems by 2021, only in the US, could exceed $1 billion. This niche of the automated material handling sector seems to have a fascinating development.